Nick Magone, CPA, CGMA, CFP®

Claiming R&D Credits Just Got More Complex

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Research and development (R&D) tax credits have long been regarded as a critical support tool for U.S. small businesses and their innovation efforts, allowing them to deduct the cost of qualified research and innovation from their organization’s taxable income.

But under new guidance from the IRS, they might not be so easy to claim when submitting an amended return.

Companies must now provide the following information to qualify for R&D credits under these circumstances:

  • Total qualified employee wage expenses, contract research expenses and supply costs
  • All business components that support the factual foundation for the credit
  • All research activities performed by business constituents
  • List of individuals who performed each research activity
  • Information each individual looked to discover

This new documentation is in addition to the previous requirements, which include:

  • Payroll information for any employees involved in R&D
  • General ledger reports listing any R&D-related expenses
  • Timekeeping records for anything related to R&D
  • Copies of contracts and invoices paid to any third-party that conducted research
  • Marketing materials, blueprints, etc. and any other documentation that presents the process and the effects of the research

So what does this mean for small businesses?

A tougher road to qualification

For small and medium-sized businesses, these credits are a form of vital capital to propel growth and increase their competitiveness. But the challenge lies in having the resources to organize, compile and submit the necessary documentation. Missing just one piece of information could result in an invalid claim.

The IRS hopes these new requirements will help weed out businesses that aren’t eligible for the credit. All businesses, however, will be granted 45 days to complete a credit refund claim during this one-year transition period. Going forward, we may see these changes apply to all R&D credits — not just on amended returns.

 Claiming what is rightfully yours

Don’t miss out on an opportunity to collect valuable funds for your small business. Contact Magone & Company today at (973) 301-2300 for guidance and support regarding this matter

Budget for Success: Your Essential Tool for Business Planning, Financing and More

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Is your business in growth mode?

Over the years, we’ve heard from too many business owners that their budget is in their head. And that may work for some in the beginning — as long as you’re not looking to grow.

As your business expands, there’s a spend against revenue. If you grow by $500,000 or a million, for example, you may need to hire more employees — so you’re going to spend more dollars. A monthly budget will help you figure out how much you can spend to still achieve your revenue goals.

And what business can’t benefit from that?

Beyond crunching the numbers

At Magone & Company, we recommend that most business owners have two to three different budgets:

  • Internal planned budget
  • Overachievement budget
  • And a budget that considers negative outcomes

Your planned budget is the one you’ll present to banks and investors when looking for financing opportunities. The other types are used when analyzing trends for the year.

As you’re forecasting trends, involve your sales team to speak with customers to gather input. What will your customers buy? How much will they spend? You can also refer to previous forecasts and estimate sales based on past purchase orders. For example, if you had purchase orders for $2 million in sales, but your overall sales for the year were $2.75 million, you can budget 35% of sales will be unplanned by your customer base.

All hands on deck

Budgeting involves more than your sales department — from your inventory team to HR to marketing and more:

  • Is there enough warehouse space?
  • Do you have a team of employees to carry out the projection?
  • Did customers indicate they’ll buy the same quantities?
  • Are customers looking for a price reduction?

Once the budget is complete, you’ll need a consistent close process to produce the actual results and analyze variances, so you can make changes to your headcount, pricing or other factors. Remember, as a business owner, you want to have the ability to change strategy and still achieve results.

Take control of your business growth

In celebration of our 30th year in business, we’re rolling out a series of educational videos to help busy executives, families and business owners meet their accounting and tax needs and achieve their financial goals.

Check out the latest on our YouTube channel, or call us at (973) 301-2300 for help setting up a business budget.

 

The Fractional CFO: Experienced Financial Talent, Without Adding to Your Headcount

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Is your company missing the financial oversight and knowledge needed to grow? Does it lack the expertise to position your business for sale, see it through a special project or temporarily replace an executive who’s left the organization?

Hiring a fractional CFO may be the solution. Simply stated, that’s an experienced CFO hired on a contract or retainer basis rather than a full-time salaried employee. Fractional CFO duties are typically focused on specific business challenges or goals.

The right person to steady the ship

Fractional CFOs often have skills and experience spanning multiple industries, so they can share valuable lessons and insights, potentially saving your business considerable time and resources.

Depending on the size and complexity of your organization, fractional CFOs can also cost much less than a full-time executive, while benefiting your business in the following ways:

Support a specific project. If your organization is planning to build a new factory or roll out a product or service, a fractional CFO can provide proficiency throughout the duration of the project.

For example, if a new niche is being planned, the temporary executive can come up with financial forecasts to demonstrate how the project will impact your bottom line and justify the undertaking’s cost to potential lenders or investors.

Provide financial planning and analysis. A seasoned professional can develop a detailed budget, prepare monthly forecasts and compile a history of your company’s financial performance.

This accomplishes two critical goals:

  1. It gives you added depth in understanding the overall performance of your business.
  2. It helps you comply with lenders’ requests for financial documentation.

Uncover and investigate fraud. Detecting corporate fraud requires experience, training and a degree of professional skepticism — skills that most fractional CFOs have developed during their careers. If criminal activity is detected in your organization, a fractional CFO can navigate the executive team through what can be a complex and sensitive investigation process.

Offer a neutral view. Your temporary CFO can bring an objective, third-party perspective, uncovering financial areas that need improvement. They can also:

  • Act as a sounding board for new ideas
  • Prepare documentation needed for a sale or an IPO
  • Facilitate a move to a new accounting software system, improving the efficiency and reliability of your organization’s financial statements

How far can your business go?

As your trusted advisor, Magone & Company can help you work through challenges and conquer financial obstacles, so your business continues to expand and increase profits. Give us a call at (973) 301-2300 to see if our fractional CFO services could be right for your business.

Building a High-performing Team, Despite Tight Labor Markets and Rising Inflation

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Mid-size companies already say the labor shortage is their biggest issue, facing mounting pressure to raise wages, alleviate cost of living pain, provide flexibility, increase benefits and add training as options.

Now, rising gas prices and inflation add additional stress on wages. If you have growth plans, you can’t afford not to have the strongest possible team.

Let’s look at the latest statistics:

Unemployment remains at historic lows. The unemployment rate is  3.6% in May 2022. This is the lowest rate in the past 20 years — with the exception of February 2020’s 3.5%, which was the month prior to the pandemic starting.

Higher labor costs. Compensation costs rose 1.4% from December 2021 to March 2022, and 4.5% year over year ending March 2022.

Energy driving inflation. The inflation rate was 8.6% in May 2022, the highest 12-month increase in prices since December 1981. The 2021 rate was 7%, compared to 1.4% in 2020. The primary drivers of inflation are energy costs and transportation costs. These include electricity, gasoline, fuel oil and vehicles.

Looking forward, the Congressional Budget Office estimates a 3.1% real GDP growth in 2022; 2.2% in 2023, and 1.5% in 2024. Inflation is expected to be tamed to about 4.7% coming out of 2022, 3.6% in 2023 and 3.8% in 2024 — a little ahead of recent years, but not horrific. Unemployment is expected to remain in the 20-year-low category of around 3.7% through 2024.

Bottom line for your business:

  • The economy is expected to grow
  • Businesses will need labor to meet demand
  • Unemployment will remain low, meaning businesses will need to compete for talent
  • Labor costs are already rising slowly
  • Inflation is driving up costs, primarily in energy and energy-related options

Workers will endure higher livings costs in the next year. Building your team will require you to find ways to alleviate that strain while rewarding top talent.

Here are three suggestions to compete in this market:

  1. Flexibility is your first option. High fuel and transportation costs means work-at-home and flexible working arrangements are at a premium. If that’s not an option, you can encourage traditional solutions such as carpooling, mass transportation (possibly offering vouchers), and flexible in-office work hours to encourage commute times that do not hit the heart of rush hour. Key: If you can offer some relief from travel costs, you’ll reduce pressure on your team.
  2. Compensation packages need to reward top talent. There’s going to be pressure to retain top talent. You’ll need line-of-sight to justify how competitive you can be — and clearly state to your team your expectations for performance. Also, clearly communicate the full value of the benefits package they receive to indicate total compensation.
  3. Training is always a strong option. Companies that invest in their people will build stronger, more loyal teams. There are tremendous online training opportunities for staff to build and expand their skill sets — while giving your company additional deductions for business expenses.

A rule of thumb is compensation is determined by three equally important factors: individual performance, company performance and labor market itself.

The key for keeping costs down is to find ways to work directly with your team, building their skills and offering compensation that fits your budget and company performance.

With our forward-looking Business Advisory services, Magone & Co can help you identify the levers that will most impact your growth and success. Call us at 973-301-2300 now or request a consult.

 

Survive and Thrive: 6 Secrets to Business Longevity

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We’ve all heard the stats — nearly a fifth of private businesses fail within their first year. After five years, 50% crash and burn.

But when you have a vision, a keen understanding of your environment and effective marketing strategies to draw in clients and prospects, you can set your business up for success in the long-term.

As a business owner of 30+ years, I’d like to share six secrets that stand the test of time:

  1. Having a pulse on your industry. How well do you really know the environment in which you compete? What are the fundamentals, challenges, trends and threats? Are you keeping up or relying on dated knowledge? Information is at the core of every successful business — from accurately assessing customers’ needs to having the confidence to set and achieve audacious business goals.
  2. Embracing your leadership role. Humility, honesty, integrity — these are just a few qualities of a strong business leader. Leaders know their people. They’re thought leadership experts. They can communicate their mission and inspire and motivate others to see the big picture. They can handle constructive criticism and feedback, taking action to build a greater organization. Or they’re wise enough to step back and hire more capable leaders. Which leads us to… 
  3. Hiring wisely. Your organization is only as great as the people who embody it. And each function at every level requires a unique set of skills and competencies that must be met to run efficiently and successfully.Fulfilling your organizational goals starts with the right recruiting and hiring process. It continues with a deliberate, strategic plan for developing and retaining talented people.
  4. Prioritizing process improvements. If your company hasn’t embraced SOPs and technology advances like automation and integration, you’ll never come out on top. Speaking from experience, these investments can be significant — but that doesn’t make them any less necessary. Without the research, tools and process improvements we’ve made over the last several years, it would’ve been impossible for Magone & Company to scale at speed and maintain a significant growth trajectory.
  5. Making strategic marketing investments. “If you build it, they will come” is not a viable plan for growth. Many service industries have become increasingly commoditized, CPAs included. As the Magone & Company business model has morphed to stay ahead of the industry, we’ve invested in consistent, ongoing multichannel marketing efforts to showcase our thought leadership and effectively differentiate our services.
  6. Overcoming fear of failure. Did you know that 33% of Americans have let fear hold them back from launching a business? Instead of stressing over all the scenarios that could play out, let them motivate you to work harder and work smarter. Anticipate challenges and how to mitigate them. Devise contingency plans if you don’t get the results you’re hoping for. If you make mistakes, learn from them and then move on to the next issue.

30 years and going strong

It’s hard to believe 30 years have passed since I’ve embarked on this venture. The next 30 years will likely be filled with new challenges and changes that will impact the way we do business. But what will not change is our unwavering commitment to help our clients achieve their goals and solve their challenges.

Don’t already have a trusted business strategist working on behalf of your organization? Let’s chat.

 

How the CFO’s Role is Becoming More Data-driven

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Lower costs and increase profits; that’s the universal mantra for CFOs. It’s as old as business itself.

What’s changing is the CFO’s role within business. They’re increasingly being asked to step up in tech and automation to propel growth while keeping costs down.

Partnering with IT

CFOs are now being asked to work closely with IT teams in designing and implementing digital tools that can provide data for decision-makers or analytics that help to identify areas within a company ripe for new growth and revenue.

As a result, CFOs are becoming more data-driven and basing key decisions on advanced analytics.

For example, the CFO of a multi-national company was tasked with overseeing the reduction of expenses by more than $750 million. The changes didn’t occur overnight, but gradually through the use of digital tools designed for specific needs like salary planning, financial forecasting, task automation and broader expense planning.

Driving front-end revenue

Cutting costs is no longer enough for successful CFOs. They must also look to long-term strategies for improved margins, revenue growth and development of new product or service lines.

Here’s where the analytics mentioned above also play a vital role in driving your company forward. If there’s no easy access to data around product line performance and profitability, sales and labor costs or sales forecasts, work with your IT team to make it happen.

Taking on non-financial roles

CFOs are also being asked to cross-train in non-finance roles within a company. It’s believed CFOs will gain better insights and develop new perspectives leading to a higher quality analysis of company data —  in turn, leading to sound financial decisions for the company.

While some jobs are lost due to automation, others are created. Instead of gathering data, displaced employees can begin to analyze it. Companies will often provide the training programs needed to become an analyst.

Simply put, analysts have the ability to condense data and present it. Data that is not only invaluable to the CFO, but others in the decision-making chain of the company.

By plugging-in all of the digital tools that are now available to them, company costs will decrease and profits will increase. Just as the company used in the first example, it surpassed the goal of slashing expenses by more than $500 million within a year of plugging-in its new technology.

Manage the rapid change of the CFO’s role with Magone & Co

We know the challenges privately held companies are experiencing — we’ve been there. That’s why we designed our Business Advisory services to help find areas that will most impact your organization’s success. Check them out and give us a call to see if they’re a fit with your company’s growth plans.